1.1 This is a survey of studies that examine competition in the presence of behaviourally biased or boundedly rational consumers. It will tackle questions such as: How does competition and pricing change when consumers are biased? Can inefficiencies that arise from consumer behavioural biases be mitigated by lowering barriers to entry? Do biased consumers make rational ones better or worse off? And will biased consumer behaviour be overcome through learning or education?

1.2 Most traditional analyses of competition focus on the supply side. They study how industries will be organised under different informational and technological assumptions. Consumers feed into these models simply in the form of well-behaved demand functions. This is different in the literature surveyed here. In these models consumers have a presence and their decision rules are modelled in detail.

1.3 Consumers’ behaviour may deviate from the orthodox ideal of perfect rationality in many different ways. Consumers may suffer from cognitive
limitations that make the comparison of products and prices harder or they may be prone to a wide range of behavioural biases: They might be
overoptimistic about the future or overconfident in their ability to avoid accidents. They might be overly afraid to lose compared to the status
quo and sometimes their preferences might change from one day to the next.

1.4 Although bounded rationality and behavioural biases among consumers is not a new theme, most papers that we survey here are fairly recent,
with the vast majority published in just the last five years. Looking at the rate with which this literature has grown, it seems fair to speak of an
explosion that has taken place. There are many reasons why this explosion happened at this time.